This presentation discusses issues and initiatives to overcome the Valley of Death in the emerging markets. For staff in development finance institutions like the World Bank, IFC, African, Asian & Inter-American Develpment Banks, NGOs, Governments & investors investing in the emerging countries/regions of Africa, Asia, CEE, CIS & Latin America.

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Lesson #3 Cash payments can become onerous for the investee with royalty payments for multiple products Happens when SME hits the & must reinvest cash to capture new growth USA (1986)The Michigan ProductDev. Fund ($4MM) What to Do? When cash payments become too much for the investee company 29 November 2011 Sell the royalty claim for equity

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What is the Valley of Death? “A phrase that refers to the period of time from when a startup firm receives an initial investment to when it begins generating revenues. In the valley of death, additional financing is usually scarce, leaving the firm vulnerable to cash flow requirements. Traversing it requires an intelligent blend of public and private sector investment.”29 November 2011

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And They Impact Investors’ DNA to Risk • Int’l Investors Typically Lead: Show the Way Forward Since They Invested in US Biz Models • Domestic Investors Follow, then Lead Since Opportunity Risks are Minimal • Execution Risks Remain, Risks that Domestic Investors Willingly ‘Buy’ 29 November 2011

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Deals Typically Centered Around: • A Single Technology • A Single Product • A Single Service • A Single Idea29 November 2011

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VC Funds Organized to Finance this Emerging Trend Began in 2008 • Finance Entrepreneurs & SMEs Executing to a Single Tech, Product or Service Idea • I Call Them ‘Deal Flow’ Funds29 November 2011

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We Can Be Smarter & More Creative to Deal Flow Funds • Themes Broader than Just E- Commerce29 November 2011

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Additional Investment Themes for Deal Flow FundsPeople own their digital Start-ups disruptingassets with New SMEs global online mktsenabling users to access with mobile & userthem anytime, anywhere driven distributionStart-ups that will make human-computer interaction seem sillywhen we look back in 20 years Source:

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A Theme With Explosive Growth • Computers Talk to One Another with the Amount & Velocity of Computer- to-Computer Interaction Increasing Exponentially • This Communication Needs Layers of Software ‘Glue’ to Bind One to the Other • A Horizontal Market with Hyper- Growth that SMEs will ExploitSource:

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But Deal Flow Funds Can Do Much, Much More29 November 2011 www.IVIpe.com Info@IVIpe.com

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So What Kind of Problems & NeedsExist for New VC PPPs*— to Leapfrog the Valley of Death? 29 November 2011 *PPP=Public/Private Partnership

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Every Country Has National Priorities in Need of Solutions29 November 2011

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Let’s Take the Natural GasShtokman Project as 1st Example Reserves Lie Inside the Arctic, 555km from the Coast of Russia, in 350m of Water www.IVIpe.com Info@IVIpe.com

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It Contains Breathtaking Wealth • Gas Reserves=3.2 Trillion cubic meters + 31MM tons of condensate, spread over an area of 1,400m²• Exploiting Reserves, Environmentally Safe & Economically Requires New Technology That Does Not Now Exist

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Who Will Innovate Needed Technology, Technical Solutions?• The Russians or the Foreigners? Somebody Will • Russians—Capture More Value & Advance Economic Development • Or Let Foreigners Innovate to Advance Knowledge Creation & Exports for Their Benefit

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What Are Examples of Challenges in Shtokman Project, in Need of New Technology? •

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Tech Solutions Not Russia Limited • More Exploration in Hostile Environments—Extreme Cold, Deep & Far Off-Shore • New Tech for Export, a Small But Substantial Success for Russia in the Global Community29 November 2011

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Improved Logistics a National Priority •Historically a Tourist Hub •A Fantastic Asset to Build On & Up29 November 2011

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Valley of Death not a Market Failure, butthe Rational Behavior of Investors to Risk29 November 2011

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Why It Works • Increases the # & Velocity of Seed & Early Stage SMEs • Deals that Better Match Investor’s DNA to Risk • Thereby Making the Valley of Death Less Scary for Investment29 November 2011 • Develops Experience

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Re-Think Interventions in Venture Capital to Make An Impact29 November 2011

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We’ve Run Out of Time Two Subjects to Discuss Next Time29 November 2011